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World: Camdessus Defends IMF

  • Robert Lyle

Washington, 10 February 1998 (RFE/RL) -- The head of the International Monetary Fund (IMF), Michel Camdessus, has launched a vigorous defense of the fund campaign against a coalition of critics on the left and right.

In similar speeches in New York and Caracas, Venezuela on the week-end, the IMF Managing Director said the critics have mostly been misinformed about what the IMF is actually doing.

The programs the fund put together to help Thailand, Indonesia and South Korea were not the usual extreme belt tightening, he said. Quite the contrary, they were a "marked departure" from the kind of reform programs the IMF has traditionally supported, Camdessus said.

"The centerpiece of each program is not a set of austerity measures to restore macroeconomic balance, but a set of forceful, far-reaching structural reforms to strengthen financial systems, increase transparency, open markets and, in so doing, restore market confidence," he said.

The only tightening required, said Camdessus, was a sharp but temporary rise in interest rates to halt the rapid exodus of capital fleeing those countries at the first hint of trouble.

Deep currency depreciations are not part of the IMF design, he said, and in fact the currency declines in Asia have been far worse than warranted or desirable. But to reverse that situation, the fund had to demand temporarily high rates to retain the capital still in the country and attract others back.

The cost of those higher interest rates is far less to most companies than the losses they suffer from long, steep slides in the value of their domestic currencies, he said.

To the criticism that the fund's recommendations are too hard in forcing local banks to close and leaving small businesses cut-off from financial resources, Camdessus said the critics miss the point.

"It would be a mistake to allow clearly bankrupt banks to remain open as this would only perpetuate the region's financial crisis, not resolve it," said Camdessus. The best course is to recapitalize (rebuild the financial structure) or close insolvent banks, protect small depositors and require shareholders to take their loses.

Camdessus said there is need for continued review and refinement of the international financial institutions and their role, but there is no denying their central value to the global economy.

He said there are six pillars upon which continued reform of the IMF and other global institutions should be built, including more effective IMF surveillance over countries' economic policies, fuller disclosure of all relevant economic and financial data, regional surveillance among neighboring countries, general financial sector reform, including better national regulation and supervision, and more effective structures for orderly debt workouts, including for the private sector.

Camdessus said there is also need for an "orderly liberalization" of international capital flows, but not a "mad rush" to full immediate liberalization nor a return to antiquated restraints. "The last thing you must liberalize is the very short-term capital movements," he said, recalling both the effects of too-quick withdrawal of short-term capital from Asia, on the one hand, and Chile's disastrous attempt to impose full controls on short-term flows.

Camdessus added another pillar after speaking -- the need to fight corruption at every level.